Gujarat HC rejects Essar Steel plea against IBC circular

Following the RBI direction, a joint lenders' forum led by State Bank of India (SBI) initiated proceeding in the National Company Law Tribunal (NCLT) under the newly-formed Insolvency and Bankruptcy Code.

The Gujarat High Court on Monday dismissed Essar Steel's petition that had challenged the Reserve Bank of India's (RBI) directive to banks for initiating insolvency proceedings against the company.

Justice S.G. Shah issued an oral order stating that no relief could be granted to the steel major. A detailed court order is expected later on Monday. Essar Steel's counsel Mihir Thakore had argued that the SBI and other lender banks under the Joint Lenders Forum may not have chose to approach the National Company Law Tribunal (NCLT) for insolvency proceedings had the RBI not issued such a circular.

One of these 12 accounts was that of Essar Steel.

The company was challenging the RBI's directive, not the SBI's decision. "This court is being misled", the RBI lawyer said.

Post this RBI identified the 12 accounts, constituting for 25 percent of total non-performing assets (NPAs) of banks.

Another point made by Essar Steel was that the press release issued by the RBI accounts for the financial position of the companies only until 31 March, 2016.

Essar Steel is amongst the 12 stressed companies that RBI has shortlisted for insolvency proceedings. At the time, lenders were already discussing a restructuring plan approved by the company's board, it said.

Today's high court decision might come as a relief to lenders, who got wary of the prospects of recovery from 12 biggest loan defaulters, as they feared the others may also move courts to stall bankruptcy proceedings and delay the retrieval after the interim relief to Essar Steel.

The Judge also said he has asked RBI to be more careful without giving out any details.

The company argued before the HC that it should not be treated on par with other eleven accounts (firms) which have been closed now, while Essar Steel is still doing well with an annual turnover of Rs 20,000 crore. Gujarat's Advocate General Kamal Trivedi appeared for Standard Chartered Bank; He was briefed by Singhi & Co.